The future of the Consumer Financial Protection Bureau (CFPB or Bureau) and the Federal Housing Finance Agency (FHFA) was the focal point of the U.S. Senate Banking, Housing and Urban Affairs Committee’s hearing on President Trump’s candidates to run the two agencies, which are both vital to the safety, soundness, and stability of the housing finance markets. This is true for lenders and consumers alike. CFPB protects consumers from the bad actors in the financial sector, and it protects good lenders from having to compete for market share with those same bad actors. When operated well, it plays an essential role in the U.S. financial system. When it is turned into a political tool, it undercuts its own authority and its mission. FHFA is essential to the availability of, as Senator Bill Hagerty (R-Tenn.) succinctly put it, “reliable sources of liquidity and funding for housing, finance and community investment.” When available to all Americans, that liquidity and funding strengthens our nation and preserves the American Dream.
If Jonathan McKernan, President Trump’s choice to lead the Bureau, is quickly confirmed and allowed to be his own person, I expect we will see a major realignment within the parameters intended by Congress. Not everyone will be happy, but the Bureau should continue to function as it was intended. But given actions and statements by the Director of the Office of Management and Budget (OMB) Russell Vought and White House “Special Government Employee” Elon Musk, it’s unclear how much of the Bureau will be left once McKernan is confirmed, or how much OMB will interfere with his leadership. I believe McKernan will bring CFPB back to its appropriate role, if he is permitted to follow the law.
At FHFA, President Trump’s pick to lead the agency, Bill Pulte, is a passionate advocate of affordable housing with a track record that includes working in one of the toughest neighborhoods in Detroit. He has an open mind and, as evidenced at the hearing last Thursday, has developed some solid relationships on both sides of the committee.
FHFA plays a crucial role regulating the activities of Fannie Mae and Freddie Mac (the Enterprises) and the Federal Home Loan Banks. Pulte asserted that his “mission will be to strengthen and safeguard the housing finance system, safe and sound housing markets are the foundation of American homeownership.” He also noted “any exit from conservatorship must be carefully planned to ensure the safety and soundness of the housing market without upward pressure on mortgage rates.” Pulte comfortably fielded a brief range of questions from members of the Committee. Senator Mike Rounds (R-S.D.) emphasized the importance of the Credit Risk Transfer (CRT) market while Senator Jack Reed (D-R.I.) pressed Pulte on the Housing Trust Fund (HTF) and Capital Magnet Fund. Pulte agreed on the importance of a healthy CRT market and affirmed that he would follow the law, which established the Housing Trust Fund and Capital Magnet Fund.
In his response to Senator Reed, Pulte affirmed he would follow the law that created the funds, but asked, “are we using the money as wisely as we can?” As an experienced houser, he committed to “going in and seeing where that money is being spent and making sure that as many homes are being built as possible through these funds.” In the past, the Housing Trust Fund has been questioned by some over its effectiveness and efficiency in creating affordable housing. These comments may signal an interest in further exploring these concerns.
In April 2021, then House Financial Services Committee Ranking Member Patrick McHenry (R-N.C.) and Ranking Member of the Subcommittee on Housing, Community Development, and Insurance Steve Stivers (R-Ohio) requested a Government Accountability Office (GAO) audit of the HTF, citing concerns that it was not meeting its objectives. They noted that despite receiving over $1.19 billion since 2016, more than two-thirds of the funds remained undisbursed, and the program had only completed 800 units of housing, equating to about $1.5 million per unit. McHenry and Stivers expressed concern that “even when the cost per unit is calculated in the light most favorable to HUD, the HTF still appears to compare poorly to the private sector housing production in terms of cost per unit. In addition to federal funds, the HTF can be used, in some cases, to leverage additional funding from various sources such as state and local real estate taxes and fees. When those leveraged funds are included in the production calculation, the total dollars for completed HTF units was approximately $882 million—still more than $1 million per completed unit of housing.”
The GAO didn’t directly address the cost per unit in its report, likely due to the fact that the timeline it takes to develop affordable housing extends beyond the annual HTF funding cycle. A later analysis by the Congressional Budget Office reported that by October 2022, projects funded with $317 million in HTF grants had produced 2,989 completed rental units, with an average HTF cost per unit of approximately $106,000. For newly constructed units, the average cost was about $122,000, and for rehabilitations, it was about $84,000.
Senator Catherine Cortez Masto (D-Nev.) raised the Federal Home Loan Banks’ (FHLBanks) contribution to the Affordable Housing Program, urging Pulte to require the banks to provide more than 20% of their net income for affordable housing and community development. The statutory requirement is 10%, though most of the FHLBanks contribute 15% or more. Pulte committed to follow the law but said he would be “open minded with anything, including ideas that you have on this matter” once he is inside the FHFA.
Pulte also raised the importance of ensuring accurate appraisals and lending for manufactured homes. “I believe that there are really some great opportunities between my friend and colleague at HUD, Scott Turner in terms of manufactured housing as well as on the mortgage side at FHFA,” he said.
The bulk of the hearing, however, focused on CFPB. Reed told McKernan he was afraid the CFPB is doomed regardless of McKernan’s intentions, saying “I have the sinking feeling you’re departing Liverpool on the Titanic, so good luck.” Given the aggressive actions by Musk and Vought to fire as many people at CFPB as possible before McKernan is confirmed, it’s entirely possible that Reed will be proved right.
Ranking Member Elizabeth Warren (D-Mass.) ran through “13 questions in five minutes,” as Chairman Tim Scott (R-S.C.) noted, to which McKernan repeatedly answered, that he would follow the law. “The North Star here is, you got to follow the law fully and faithfully execute the statute,” McKernan said. “I’m going to make sure the CFPB performs each of its statutory” functions. Warren concluded by saying, “If you follow the law we’ll all be good.” McKernan had a tougher exchange with Senator Mark Warner (D-Va.) over $20 billion returned to consumers by CFPB actions. Warner tried to get McKernan to acknowledge that the money the CFPB has returned to about 195 million harmed consumers since its inception was a good thing. McKernan responded that “I don’t think we should evaluate the success of the CFPB based on dollar numbers or enforcement count.” Instead, he said “we should evaluate the CFPB director based on whether we have fair” rules for the market.
Both candidates received relatively fair and balanced treatment from both sides of the aisle. Republicans have nearly unanimously confirmed all of President Trump’s nominees to date. While it is unclear how many Democrats will be willing to vote for any Trump nominee given the daily reports on the DOGE wrecking ball, it is certainly in their – and our – interest to see McKernan and Pulte confirmed as quickly as possible. It’s in everyone’s interest to get the CFPB off of Reed’s Titanic metaphor, before it leaves Liverpool.